One of the few areas of insurance law that has been historically settled is the duty to defend. Pennsylvania’s courts historically followed the “in for one, in for all rule.” Under that rule, a single covered claim triggered an insurers obligation to defend the entire action. With its decision in Lupu v. Loan City, LLC, the Third Circuit created an exception to Pennsylvania law for title insurers. Under this exception, a title insurer is only obligated to defend those allegations that flow from the defect in the title.
What are the practical implications for this decision? For general liability insurers, the decision does not alter the insurer’s obligation to afford a defense where a complaint alleges both covered and non-covered causes of action. For title insurers, it significantly narrows their potential defense obligations. On one hand, this is a positive result for title insurers. However, there will likely be indirect consequences including the increased tension between insureds (and their personal counsel) and counsel appointed by the title insurer since their interests are no longer perfectly aligned and increased litigation costs as claimants use artful pleadings to fit non-covered claims within the defects that flowed from the title.